TAG Oil Blog

Here are some shots of our capable contractors dropping the bar to perforate the Cheal-E-JV-6 well, as we initiated production testing.

The Cheal-E6 step-out well was successfully drilled to 1,939 meters (6,360 feet), and it fulfilled its main objective: to intersect oil- and gas-bearing sands in the Mt. Messenger Formation. It’s interpreted to have intersected more than nine meters (29.5 feet) of net oil- and gas-bearing sands, and the well is being completed as a potential oil well with production testing underway.

Results will be known after we have a few weeks of production testing under our belts. Now it’s on to TAG’s Cheal-E7 well!

There hasn’t been much blog news from the field lately, sometimes geology and science can be quiet, solitary stuff. But we’re pleased to report that as of October 2014 TAG achieved record monthly production of 1,990 BOE (76% oil) per day.

And now with the Nova-1 drill rig back in Taranaki we’ve resumed the next wave of development, appraisal, step-out drilling, and field optimization work in our Taranaki oil and gas fields.

We’re kicking off this portion of TAG Oil’s Taranaki drilling campaign with the Cheal-E-JV-6 and the Cheal-E7 wells, acreage that we believe is prospective for high productivity wells. The strong production performance of Cheal-E1, Cheal-E4, and Cheal-E5 makes further development of the Cheal-E site particularly compelling.

When finished, the Nova-1 drill rig will move to our Sidewinder oil and gas field to target the oil potential identified from oil shows encountered in TAG’s six Sidewinder gas wells. This acreage borders the Ngatoro/ Kaimiro field, which has been producing for 31 years, and still has millions of BOE’s of recoverable reserves remaining.

Cardiff-3 Deep Uphole Completion Update

After further technical analysis of Cardiff-3’s lower K3E zone (which returned gas and condensate but at uneconomic rates), TAG is now in the planning stages to production test the primary uphole zones, the McKee and K1A Formations. These are both producing formations in large fields along trend to the Cardiff prospect.

Here are a few pictures of our Cheal South permit (TAG Oil: 50% interest), during initial testing of the Cheal-G1 well that may prove to be economic.

As announced back in May, in a 50-50 joint venture with East West Petroleum, TAG drilled four shallow exploration wells and one exploration sidetrack well within the Cheal South and Southern Cross areas. While the other wells on this site were plugged and abandoned, the Cheal-G1 well is currently undergoing production testing as a new discovery.

What better way to bookend TAG Oil’s 2014 fiscal year than with great panoramic shots of two exploration drill sites: above is the Taranaki Basin at Southern Cross, and below is our upcoming Waitangi Valley-1 well drilling pad in the East Coast Basin.

It was a good year at TAG, with active step-out drilling and approximately 893,000 BOE of new gross reserves to date. New discovery area production has been consistent and that success has opened up several new, promising, development drilling locations.

On the other side of the island is the Waitangi Valley-1 drill site. This exploration prospect is TAG's second unconventional well, this time targeting the source rocks in a deeper basinal setting than the Ngapaeruru-1 well. It also includes possible conventional discovery potential, as we drill through a number of Miocene-age sands similar to what we produce from in Taranaki.

At Cardiff-3 we are planning an uphole completion once the drilling data has been further analyzed and our team has determined the best way to complete the well.

Meanwhile, sticking to plan and equipment availability, we move on to development drilling within TAG’s 100%-owned, proven Cheal field, the newly discovered Greater Cheal area, and two new step-out wells targeting the oil potential in our lightly explored Sidewinder field acreage, neighbor to the successful Ngatoro field, which has been producing high netback oil for more than 25 years.

Company finances remain strong, and so does our commitment to the community, as we fund a Stratford High School scholarship (hats off to this year’s winner Anna England, who will be studying Geology at Victoria University), sponsoring the Taranaki Rugby Football Union, the New Plymouth Surf Life Saving Club, donating a new kitchen to the Ngaere School, and much more.

TAG Oil CEO Garth Johnson and COO Drew Cadenhead took to the phone lines last week to discuss recent drilling announcements and the new fiscal year’s operational plans. Typically forthright, forthcoming and realistic, they outlined the Company’s plans and answered participant questions.

TAG’s vision remains in focus, to:

Grow baseline reserves, production, and cash flow in Taranaki

Build a steady stream of long-term predictable cash flow from production

Continue to pursue high-impact Taranaki exploration in deep Kapuni and the offshore Kaheru

Unlock the vast potential of unconventional East Coast basin assets

Focus on maintaining balance sheet strength.

Said CEO Johnson: “Our approach to our business plan has always been to start off with an understanding of what we can afford to do. We high-grade our prospects that we have in inventory. We analyze our commitments to maintain permits in good standing. And we agree what the acceptable risks are versus the potential returns with each drill prospect, and then we execute our plan.

We always consider the amount of value that can be created by a variety of potential programs as part of our process. So we ensure we choose the right program that provides an opportunity for large-scale success without putting the Company at risk financially….

Can we guarantee success? No. But we set our sights high. We work hard. We study our data. We learn from our mistakes. We manage the risks and we stick to our business plan, which gives us the best shot at success.”

Specific details of the CapEx program

TAG has defined a $60 million CapEx program for the fiscal year, fully funded through forecasted cash flow and working capital on-hand. The investments break down as follows:

$5 million slated for offshore Taranaki in preparation to drill the Kaheru prospect (40% interest)

$3 million for an uphole completion at Cardiff-3, once the data has been studied

$1 million to drill a well in the frontier Canterbury basin, where oil and gas seeps onshore and discoveries offshore have confirmed the hydrocarbon system is working

$20 million to drill and test East Coast unconventional wells:

- Drill the new Waitangi Valley-1 well

- Drill the new Boar Hill-1 well

- Test the Ngapaeruru 1 well at the same time

On recent challenges

Sidewinder Miocene gas BOEs declined rapidly early on, but are now steady at 150 BOEs a day.

While Cardiff’s deepest K3E zone wasn’t immediately successful, the data confirms the zone is filled with hydrocarbons: gas, oil and condensate. We just have to figure out how best to unlock it.

Meanwhile, the upper two, previously proven zones, are our next target, as soon as we have a rig free.

The only economical rig in New Zealand is the Nova 1 rig, which is booked for two Cheal-B wells starting next week, then one East Coast deep well at Waitangi Valley. So we're looking at three to six months before that rig returns to Taranaki.

While the actual operational aspects of the completion and testing are quick, the pre-operational setup steps for fracking in New Zealand are long and involved, and also fairly new. These include specific consents both on regional district council consents, water consents, and much more.

Because we have to mobilize an entirely different set of equipment over to the east coast to test wells, we made a strategic / economic decision to delay further testing of the Ngapaeruru well until we had two or three wells to test back to back, if warranted.

Looking ahead

While there are no guarantees in this business, we see every reason to continue setting our sights high. TAG Oil is excellent at reading its data, managing its risks, and sticking to its business plan. And operationally, we’re still looking ahead to another big surprise well like Cheal E1 or B5, cracking Cardiff, branching out into Kaheru offshore, and establishing a new oil and gas zone in the East Coast Basin, or maybe even the Canterbury Basin. We’re counting on our quality team, the data, excellent acreage, and sound fundamentals, but only time will tell for sure.

The Cheal sites have been active these past few months, and we've finally gotten some photos in from the field. From Cheal A to G, we're making improvements, loading oil, and preparing to tie in more wells.

To start with the wider view before going micro with the shots below, here's one that shows TAG living harmoniously with its bovine neighbors.

A 400 bbl oil tank at the Cheal E site: a second identical tank will be placed beside it soon.

And over at the Cheal A site, oil tankers fill up with our product: a beautiful sight!

The five wells at the E-Site. The plant is permanently built, and two of the five wells are permanently tied in. Shows how low profile these sites are once we're producing.

Awaiting commission of the Thermal Combustion Chamber (hidden on the right), which will contain the flare at the E-Site.

TAG committed to its Cheal E facility after drilling the E1 well, and less than two months later, the new oil-handling facility is in place: designed, constructed and commissioned in record time…and we’re flowing oil through this new facility today. All successful E site wells can now be tied straight into this permanent plant.

In the past, New Zealand companies would use temporary interruptible test facilities for two to three years before committing to a permanent facility. But we now have the track record and data to understand the technical and economical aspects of these plays to know when it’s economical to commit to a permanent facility. In fact, based on the E1 well alone, we’re already adding additional oil storage facilities, and restricting the well with a 1/4” choke until they’re in.

Lagging Oil Lifters: Working well now, but we're always looking for improvements

Over at the original Cheal A facility we had some reliability issues with our new power fluid pump system that resulted in reduced production rates last quarter.

We’ve got those taken care of and are back on track, but because of the importance of the oil lift pumps, we're testing some alternate production methods to reduce reliance on power fluid lift. When a pump going down can lead to a loss of five to seven wells’ worth of production, it’s good to look at other long-term backup solutions. Results to date are encouraging, but we continue to test. And we've now got a team in place that's always looking to optimize production.

Cheal-E continues to provide good news, with three wells cased as potential oil wells – one of which is being flow tested – and Cheal-E 4 now drilling ahead.

To ensure more reliable production forecasting on future wells, we’re following a protocol of initially testing each well individually: with each flowing for approximately 15 days, and then shut in temporarily to conduct pressure and temperature analysis. During this shut-in period, the next well will be placed on a 15-day production test until all new wells at the site have been individually tested and build-up analysis completed.

During its initial 5-day flush period Cheal-E1 was testing at 600 BOEs a day, about 90% of that oil, flowing naturally without the aid of artificial lift. We know that will settle down to a more typical Mt. Messenger well average over the course of the next year, but considering the fact that Cheal E represents a substantial extension of our known oil saturation area at Cheal, we’re fully pleased with the results, and happy to be getting the proceeds from the sale of all that oil.

While our deep prospects have been dominating the news, the team is moving ahead methodically drilling TAG's shallow oil and gas prospects at Cheal. They took a minute to send some shots from the field of a recent perforation at Cheal-E2, as well as modeling some of the new equipment that's in place to move the oil and gas.

Taking the cap off of E-2, and getting ready to perforate.

Randy Toone on the ladder about to drop the bar to perforate.

Smile for the camera...

And there she goes! Jack starts the clock: it should take about 3.5 minutes to land on the firing pin at the Urenui zone.

Hands on the well head to feel the guns fire: 2.5 minutes... 3 minutes... Boom! Successful perforation.

Shane already has concrete pads poured for the permanent production facility at the Cheal E-Site.

And he models the line heater, already built and installed, that will heat power fluid.

Instrumentation is already in place, waiting to be connected.

Shane explains how the power fluid pumps will sit right on the pads.

Out the back of the facility, this is where the pipe rack will carry gas down to the flare tank in the distance.

This coming weekend marks the kickoff of our 12-well drilling campaign, fully funded with income from the sale and production of TAG Oil's own Taranaki oil and gas, and the Company's strong balance sheet.

We'll start with the Cheal E-1 well, which continues TAG's shallow drilling program, and our first high-impact, deep gas well, Cardiff-3. should spud about four weeks later. Let's see if our unprecedented streak can continue. More reports soon as events unfold....